Z Street alleges IRS playing politics

WASHINGTON (JTA) — A pro-Israel activist group filed a lawsuit alleging that its application for U.S. tax-exempt status is being unduly scrutinized.

Z Street, a right-wing group intended to counterbalance left-wing J Street, said in its lawsuit that the U.S. Internal Revenue Service delayed and may deny their application for tax-exempt status because it was receiving further scrutiny over whether the organization would oppose the Obama administration’s policy on Israel. Z Street filed the complaint Wednesday in Pennsylvania against the commissioner of the Internal Revenue Service. Experts in nonprofit law told the Forward that the allegations are unlikely to be true.

The complaint alleges that IRS agent Diane Gentry said applications from organizations dealing with Israel-related issues “are being sent to a special unit in the D.C. office to determine whether the organization’s activities contradict the administration’s public policies."

Laura Rozen noted in her blog at Politico that the IRS may have been trying to determine whether or not Z Street was an educational organization, which is a requirement for tax exemption.

“Furthermore Agent Gentry advised Z Street’s counsel that she questioned whether Z Street’s activities were educational as described under Section 501(c)(3) of the Code, but instead might be lobbying, or that Z Street might be an ‘action organization,’ which is the case when the only way to accomplish the purpose of the organization is through legislation,” the lawsuit stated.

According to the Forward, applications for tax-exempt status are sent to the IRS’s quality assurance office in Washington if they involve terrorist countries or if the IRS receives a petition from a third party to deny the applicant tax-exempt status. Z Street’s petition could have been sent to Washington for either of those reasons.